Punitive Damages in Employment

DISCRIMINATION CASES: MYTH OR REALITY?

NYSBA Labor and Employment Law Journal
Fall/Winter 2012
Vol. 37 No. 3

I. Introduction

As a mediator specializing in employment disputes, most of
which involve discrimination charges, I fairly often receive
assurances from plaintiffs' lawyers that their clients are very
likely to receive substantial punitive damages if the matter goes
to trial. A number routinely include in their pre-mediation
submissions a laundry list of employee-dream, employer-nightmare
punitive awards. Rarely is any attempt made to compare the facts
of the case at hand with those of the cases yielding a jackpot.
I do not usually attempt to argue; I simply admonish that one
cannot bargain with respect to punitive damages — their incidence
and size are just too random. At most, I advise, the potential for
a verdict including punitives should operate as a thumb on the
scale, a consideration that might influence parties to settle at
the higher end of an otherwise determined reasonable range.

But even attorneys disinclined to heed my counsel, in
mediations or in unfacilitated talks, would probably agree that the
more they know (not guess or intuit) about the subject, the better
they can serve their clients in negotiation. This article
constitutes a modest effort to substitute facts for emotions and
"hype" in discussions generally evincing much more heat than light.
The results should dampen the expectations of plaintiffs' counsel
who imagines that a sizable punitive verdict will surely reward her
efforts at trial while cautioning her dismissive opponent that
sometimes the vision is not a mirage.

The last two decades have seen the emergence of a Supreme
Court jurisprudence setting due process limitations on the size of
punitive damages awards. Its overarching principle is that the
Fourteenth Amendment forbids the states to impose on a tortfeasor
"grossly excessive or arbitrary punishments." [2]

The seminal decision of BMW of North America, Inc. v. Gore, [3] announced three factors (the "Gore guideposts") to use in
determining whether a particular punitive award had crossed the
constitutional line: (1) the degree of reprehensibility of the
defendant's conduct; (2) the disparity between the actual or
potential harm suffered by the plaintiff and the punitive damages
award; and (3) the difference between the award and the civil
penalties authorized or handed down in comparable cases. [4] The
Court has emphasized the second guidepost, opining in 2003 that a
single-digit ratio between punitive and compensatory damages is
"more likely to comport with due process" [5] In 2008, in Exxon
Shipping Co. v. Baker, [6] the justices established a 1:1 ratio as "a
fair upper limit" in maritime matters. Although federal common law
and the Clean Water Act governed this case, they bolstered their
conclusion by reference to the one-digit maximum presumptively
appropriate under their prior due process precedents. [7]

Notably, neither Gore nor any of the subsequent decisions in
this vein arose in an employment discrimination context. The Civil
Rights Act of 1991 [8] for the first time provided for punitive
damages under Title VII if the complainant demonstrates that the
"respondent (other than a government, government agency or
political subdivision) ... engaged in a discriminatory practice ...
with malice or with reckless indifference to the federally
protected rights of an aggrieved individual." [9] In Kolstad v.
American Dental Association, [10] which involved alleged sex
discrimination, the Court fleshed out the requirements of the
amended law in certain respects.

Justice O'Connor's majority opinion held that to satisfy the
statute's "mens rea" element so as to support liability for
punitives, the perpetrator "must at least discriminate in the face
of a perceived risk that its actions will violate federal law";
the Court rejected the view of the en banc D.C. Circuit that the
actor's conduct must have been "egregious." [11] The opinion also
stated that "[t]he inquiry does not end with a showing of the
requisite 'malice or reckless indifference' on the part of certain
individuals .... The plaintiff must impute liability for punitive
damages to respondent" — that is, the employer. Agency law permits
such vicarious liability when the principal either authorizes or
ratifies the tortious act or "the agent was employed in a
managerial capacity and was acting in the scope of employment."
The Justice, however, departed from strict agency precepts by
framing a defense for the employer whose agent's "discriminatory
employment decisions are contrary to [its] `good-faith efforts to
comply with Title VII.'" [12]

None of the key terms in the opinion is self-defining. Thus,
the lower courts have struggled over how to apply such concepts as
"malice or reckless indifference," "managerial capacity," and "good
faith efforts." [13]

Significantly, unlike the cases discussed earlier, Kolstad did
not deal with the issue of excessiveness. More on point in this
regard in the setting of punitive damage awards in employment
lawsuits is the statute itself: it calls for caps ranging from
$50,000 to $300,000, depending on the number of workers employed by
the defendant. [14] These maximums' existence reduces although it does
not eliminate the likelihood that a punitive award under Title VII
or the ADA will run afoul of the Gore guideposts, especially the
second. Presumably, in the wake of Exxon, these criteria would
inform rather than control the inquiry in the federal context. [15] Due-process analysis does, however, apply to punitive damages
assessed pursuant to the New York City Administrative Code.
(Notably, it contains no caps. [16] But within the Second Circuit,
courts may invoke a "shock the judicial conscience" test (which
also refers to the Gore factors) to find a punitive award excessive
even if it is not so large as to offend the Constitution. [17]

What lessons can practitioners usefully draw from this brief
review? In a nutshell: pertinent law considerably constrains the
jury's power to redress employment discrimination through an
assessment of punitive damages. Furthermore, judges have not been
reluctant to police such awards quite vigorously. [18] Even the
plaintiff who gains the proverbial pot of gold in the first
instance will often see it substantially — if not wholly — drained
by the end of post-trial motions and appeals.

III. A Sampling of Punitive Awards in the
New York City Metropolitan Area

One can analogize the universe of civil cases to an iceberg.
Matters that culminate in a trial comprise the portion above the
water; pre-trial dispositions and settlements lurk, invisibly,
below the surface. Of the visible part — the top one-third, let us
estimate [19] — consists of those lawsuits that plaintiffs have won.
In terms of our metaphor, only the very tip of the top represents
cases in which the verdict has included punitive damages. These
observations hold as true for employment litigation as for other
disputes. [20]

In my earlier article on employment discrimination trials in
the Southern and Eastern Districts of New York, I remarked that the
necessarily small number of verdicts that could be surveyed
precluded the type of rigorous analysis that, one hopes, may lead
to statistically significant results. [21] The same is true in spades
of a study of punitive damages limited to a particular geographic
and subject area. Nonetheless, having dealt with the topic in my
previous piece in only a paragraph, I thought it worthwhile to
expand the inquiry. Even an impressionistic picture might serve as
a reality check for attorneys and clients who fixate, either in
hope or in fear, on a few humongous punitive awards - "litigation
legends" bearing no more relationship to litigation reality than a
pro basketball player's height bears to the average adult male's.

The database used in the trial study (relevant filings in 2004
and 2005) [22]yielded 33 winning plaintiffs eligible for punitive
damages; of these, six (18.2%) actually received them. The median
figure (after taking into account post-trial reductions, which one-half suffered) lay between $50,000 and $190,000 (average
$120,000). [23] Respecting the key parameter of amount, this handful
of cases tells us little, though it does provide anecdotal support
for the conclusion suggested by pertinent legal doctrine as well as
experience: a plaintiff with a punitive verdict should celebrate
only, or to the extent, that it survives post-trial defense attacks
upon it. [24]

A. The Present Study: How Much Punitive Damages Do Plaintiffs
Get, in What Kinds of Cases?

In an attempt to expand the data, I
searched for punitive damages verdicts using a variety of sources
covering trials [25] occurring between 2000 and 2011. From PACER, the
online system for tracking federal litigation, I took closed
employment cases whose last docket entries were in 2010-2011; the
trials resulting in a punitive award occurred between 2003 and
2011. The rest of the data came from Westlaw databases: (1) CTA2-ALL - 2008 (published federal and state cases in the Second
Circuit [26]); (2) NY-CS - 2000-11 (published state cases [27]); and (3)
JV-2nd - 2000-11 (synopses of federal and state cases). [28] I
excluded class actions and suits against governments and related
entities, as to which punitive damages are barred. [29]

My review of these sources yielded a total of 34 cases (26
federal and eight state) with punitive awards; the number of
plaintiffs was 41. Interestingly, nearly a quarter of these — representing almost one-third of the cases — were made in actions
culminating in default judgments; hence, no jury was involved.

Although this study was not designed to permit testing for
statistical significance, it did produce a seemingly robust
correlation between type of claim and punitive damages. Twenty
plaintiffs whose verdict included punitive damages (48.8% of the
41) in nineteen cases (55.9% of the 34) had prevailed on a charge
of retaliation. Furthermore, fourteen plaintiffs (34.1%) in eleven
cases (32.4%) won on the ground of sexual harassment. (Some of the
latter also bore features of other kinds of sex discrimination.)
Several received punitive awards on both these claims. [30] Notably,
of the six impositions of punitive damages identified in my
previous article, five represented victories on retaliation; the
remaining one arose from a charge of sexual harassment. [31]

With regard to amount, averages tend to be misleading on
account of their sensitivity to outliers — especially large ones;
more informative for one who wishes to calculate the probability of
an award's falling within a certain range is the median, the middle
value or values in a distribution. [32] The median amount of punitives
found by the trial factfinder (calculated by number of cases) came
to $500,000. [33] The calculation by plaintiff was harder because of
an undifferentiated verdict for three people; on the reasonable
assumption that they split the amount roughly evenly, the median
would be around $326,667.

But apart from its potential utility as leverage in post-verdict bargaining, which may be substantial at times, [34] a trial
award of punitive damages presents a picture that is often
deceptively favorable to the plaintiff. To re-invoke my earlier
metaphor, cases (or plaintiffs) with punitive verdicts that
survived, let alone survived intact, through the close of
litigation embrace only the tip of the tip of the top of the
iceberg.

Simply put, of the 41 plaintiffs who initially received
punitive damages, two suffered a later court ruling that they were
not entitled to punitives; eight were subjected to reversal of
their victory for lack of liability or trial error [35]; and thirteen
saw their damages reduced when defendants prevailed on a motion for
remittitur. (Three of the latter reductions were due to statutory
caps.) Thus, a mere 31 out of 41 plaintiffs (about three-quarters)
ended up with punitive damages in some amount; and only 18 (43.9%)
retained the full original award. When one calculates by case,
not plaintiff, the result is that only in 27 of the 34 actions
yielding punitives (79.4%) did the prevailing party or parties hold
onto at least part of the award; the figure was 14 out of 34
(41.2%) for awards that survived unchanged. Given these setbacks,
predictably plaintiffs' median award fell considerably: to $200,000
(by case) and $75,000 (by plaintiff). [36]An appended chart sets
forth this study's principal "before and after" conclusions.

B. The Present Study: How Often Do Plaintiffs Get Punitive
Damages?

Logically, this question precedes the questions of who
receives them and how much. But because my inquiry was mainly
geared toward finding cases where plaintiffs had received punitive
damages, I give the topic secondary, and summary, treatment. The
only information I had that could yield the ratio of number of
punitive awards to number of prevailing employment plaintiffs came
from my PACER database, cases with final docket entries in 2010-2011; therefore, they are all federal.

Of 20 plaintiffs who won, twelve, or 60%, received a punitive
verdict from the trier of fact; eleven, or 55%, retained their
awards in whole or in part. In my estimation, this number is high
— given the relative paucity of cases, it may well be an artifact
of sampling error. Significantly, an exhaustive study by Professor
Marc Galanter of punitive damages awards in 1992 in the nation's
largest 75 counties found that only 26.8% of victorious employment
plaintiffs obtained such an award from the factfinder. [37] In a
review of all published federal decisions in 2004 and 2005,
focusing on awards of punitives in cases arising under Title VII,
Professor Joseph A. Seiner found that about 29% of juries who
returned a plaintiff's verdict also gave out punitive damages. [38] Recall that the 33 relevant suits in my prior article, which dealt
with cases from the Southern and Eastern Districts of New York,
produced the lowest rate of all, 18.2%.

IV. Conclusion

At the end of the day, there is mixed news for plaintiffs and
defendants on the subject of punitive damages in employment
discrimination cases. Their incidence is likely rarer than
suggested by the small numbers in this study; their amount, after
post-trial depredations, is quite moderate. Still, employers can
hardly discount this civil form of "capital punishment" as a
prospect comparably "freakish" to being hit by a bolt of
lightning. [39] Other than egregious facts, [40] an obvious predictor, a
strong claim of retaliation or sexual harassment should alert
counsel to the realistic possibility of such an award — especially
in cases that involve a notorious defendant.

Seasoned practitioners will scarcely find these conclusions
surprising, though a fair number of plaintiffs' attorneys seem to
ignore the lessons of experience (or posture in a way suggesting
they do so). Perhaps this article will at least help both sides'
counsel to educate clients misled by media exaggeration of
supposedly rampant large recoveries to base their litigation
decisions on a cool-headed view of the actual facts. If so, it
will have served its purpose.

5. State Farm, 538 U.S. at 425. Justice Kennedy's opinion for the
Court stated that in Pacific Mut. Life Ins. Co. v. Haslip, 499 U.S.
1(1991), "in upholding a punitive damages award, we concluded that
an award of more than four times the amount of compensatory damages
might be close to the line of constitutional impropriety.... We
cited that 4-to-1 ratio again in Gore." State Farm, 538 U.S. at
425. (Back)

13. See Joseph A. Seiner, The Failure of Punitive Damages in
Employment Discrimination Cases: A Call for Change, 50 WM. & MARY
L. REV. 735, 754 (2008). The Kolstad Court itself noted the lack
of any good definition of what constitutes "managerial capacity." See 527 U.S. at 543. It wrote that examples in the Restatement of
Torts suggested that to come under this definition "an employee
must be 'important,' but perhaps need not be the employer's `top
management, officers or directors.'" Id. (citations omitted).
The opinion also implied that a written policy can go far toward
negating malice or recklessness. Id. at 545 (citation omitted).
Relevant trainings can likely perform a similar function. The
employer (on whom the burden of proof of good faith probably rests)
must also be able to demonstrate that the policy is effectively
enforced. See Seiner, supra note 1, at 475, 511-12. (Back)

15. See Seiner, supra note 1, at 491-93. The same would be true
for cases arising under Section 1981, which permits punitive awards
in appropriate cases, see Johnson v. Railway Express Agency, Inc.,
421 U.S. 454, 460 (1975), and has no caps. (Back)

24. While any verdict is potentially subject to the vagaries of
post-trial motions and appeals, punitive awards, especially large
ones, predictably attract such defense maneuvers disproportionately
often. Even an "unstable" award, however, may advantage the
plaintiff in that it provides leverage for settlement. See, e.g.,
Velez v. Novartis Pharmaceuticals Corp., 2010 WL 4877852 (S.D.N.Y.
Nov. 30, 2010) (after sex discrimination class action trial
resulted in a verdict for, inter alia, $250 million in punitive
damages, parties settled for relief valued at up to $175 million).
In one of the cases in my database, Chisholm v. Memorial Sloan-Kettering Cancer Center, 824 F. Supp.2d 573 (S.D.N.Y. 2011), a
plaintiff who obtained $1 million in punitive damages refused to
accept a remittitur to $50,000. Both sides appealed. Later they
withdrew their appeals, settled the matter — which also involved
$233,290 in back pay, $102,546 in front pay, $13,665 in pre-judgment interest, and an unknown amount of attorneys' fees — for
$690,000. (Back)

25. Under "trials" I include inquests leading to default
judgments. (Back)

26. I found only federal cases. The trials in this sample had
taken place in 2007-2008. Given that the median time to get to
trial was about a year and a half in the prior study, the cases
reviewed there would probably have clustered in 2006-2008. See text accompanying note 22; Berger, supra note 19, at 44. When
compiling the results of all my searches for this study, I
eliminated duplicate cases. (Back)

27. This search yielded punitive verdicts from 2000-2007. In the
2000 case, the amount was not given. (Back)

28. Trials in the state cases occurred from 2003-2008. In one
tried in 2005 the jury said that the plaintiff was entitled to
punitive damages but did not indicate any amount. (The court in
dictum stated that punitives were not warranted.) In the federal
cases trials took place between 2004 and 2010. (Back)

29. Title VII's authorization of punitive awards in terms excludes
"a government, government agency or political subdivision." 42
U.S.C. § 1981a(b)(1). See Terry v. Ashcroft, 336 F.3d 128, 153 (2d
Cir. 2003). Nor are such damages available against New York City, see Krohn v. N.Y.C. Police Dep't, 2 N.Y.3d 329, 778 N.Y.S.2d 746
(2004), or a public corporation like CUNY. See Norris v. N.Y.C.
Institute of Technology, 2009 WL 82556, at *8 (E.D.N.Y. Jan. 14,
2009). Because City law does permit aiding and abetting liability, see id. at *8-*9; N.Y.C. ADMIN. CODE § 8-107(6), it is conceivable
that I may have missed one or more cases involving this type of
situation. (Back)

30. In one instance, each of two plaintiffs was given punitives
for sexual harassment "or" retaliation. (Back)

35. In two cases an appellate court disapproved in dicta the trial
court's actions with respect to punitive damages. In one instance,
the New York Appellate Division, First Department, stated that it
would have annulled in any event the "grossly excessive
compensatory and punitive damages." (The latter exceeded $10
million.) See Minichiello v. Supper Club, 296 App. Div.2d 350,
350, 353, 745 N.Y.S.2d 24, 26 (1st Dep't 2002). In another, the
Appellate Term, First Department, opined that if it were not
reversing, it would have found that the evidence failed to warrant
a punitive damages award. See Taylor v. N.Y.U. Med. Ctr., 21
Misc.3d 23, 28, 871 N.Y.S.2d 568, 573 (N.Y. Sup. Ct. App. Term
2008). (Back)

36. The latter calculation included one verdict of $0, where the
court set aside a $5,000 punitive award as a matter of law.
Because it would have been misleading to record in this manner
verdicts lost pursuant to reversal for trial error, unrelated to
punitive damages, I omitted such cases entirely. (Back)

38. See Seiner, supra note 13, at 741-742, 758-59. As the author
admits, a database limited to published decisions cannot capture
those cases that yielded no opinion. See also Berger, supra note
19, at 45 (discussing publication bias). I suspect that a survey
limited in this way may well exaggerate the ratio of punitive
damages awards to plaintiffs' verdicts. An imposition of punitive
damages, especially when it is large or contested by the defense,
should be one of the factors making a case important enough for a
judge to submit for publication. (Back)

39. Cf. Furman v. Georgia, 408 U.S. 238, 309-10 (1972) (Stewart,
J., concurring)("These death sentences are cruel and unusual in the
same way that being struck by lightning is cruel and unusual.") (Back)